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A trading platform that outlaws what it sees as abusive practices

45 pointsby galaktoralmost 10 years ago

8 comments

tptacekalmost 10 years ago
<i>In 2006, if I saw 100,000 shares of AMD offered, and I wanted it, I could go out and buy it. It was a simple as that. In 2007, if I tried to buy 100,000 shares, I would get 80,000. Then in 2008 I would get 60,000. The market is showing me a volume at a price that I can no longer buy or sell at. I can’t buy or sell what I see on my screen.</i><p>Another way to put this:<p>&quot;Once upon a time, I was paid a fortune by a giant investment bank to move large blocks of stock on behalf of their spectacularly wealthy clients. As recently as 2006, if one of those clients needed me to move a block of 100,000 shares, I could do that at literally the click of a button. This despite the fact that I earned a commission on the trade; it must have been a very expensive button my bank owned! And this despite the fact that my 100,000 share order was bound to move the market, and so I was in effect acting on inside information. But that&#x27;s just how this is supposed to work, right?<p>&quot;Anyways, the markets evolved, and my giant investment bank could no longer earn massive commissions just by pushing a single button. Even though I knew my giant hedge fund clients were going to dump vast numbers of shares on the market, depressing prices for all the other investors, the markets no longer allowed me to trivially profit from that information! My 100,000 share orders get broken into small numbers of lots just like everyone else&#x27;s. No fair!&quot;<p>&quot;So I started a new exchange to rewind the markets back to the glorious, equitable, fair, transparent days of 2006.&quot;
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yummyfajitasalmost 10 years ago
It&#x27;s pretty silly to describe IEX as curbing &quot;abusive&quot; practices.<p>What IEX is attempting to do is build a platform where large traders can move lots of shares while their smaller counterparties are stuck absorbing the price impact. This is potentially useful for large traders (e.g. Goldman, JP Morgan and Citi, as mentioned in the article) but bad for small traders.<p>What&#x27;s actually kind of &quot;abusive&quot; is IEX&#x27;s marketing - they are encouraging unsophisticated investors to direct liquidity to them rather than having brokers route for best execution.<p><a href="http:&#x2F;&#x2F;www.iextrading.com&#x2F;insight&#x2F;letter&#x2F;" rel="nofollow">http:&#x2F;&#x2F;www.iextrading.com&#x2F;insight&#x2F;letter&#x2F;</a><p>This letter directs your broker to route your trades to IEX, rather than the best available venue. This means you may be stuck paying IEX fees - which could be greater than other venue&#x27;s fees - and of course, you are providing liquidity to sharks who want to make sure you absorb the price impact of their trades.
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kasey_junkalmost 10 years ago
&gt; They could see my order at BATS, race me to the next exchange, and cancel all their sell orders and buy whatever is left, buy everything up, then turn around and try and sell stock back to me at a higher price. So that was the game.<p>This is the heart of the problem with IEX&#x27;s explanation of the markets, and why I think most people view HFT as unfair. But its not how cross exchange market making actually works. The HFTs are not rushing to buy up existing inventory from others who are selling it, in an attempt to screw others. They are the ones who are originally offering to sell it in the first place. They aren&#x27;t rushing to buy, they are rushing to change the price of their inventory.<p>The metaphor I like to use is that of a chain of gas stations running down a highway, owned by the same people. If a tanker truck pulls up at the first two and buys up all their gasoline, it would be perfectly reasonable for those first 2 to call ahead to the rest down the highway and tell them to raise their prices, as they clearly were being used to supply someone else&#x27;s industry at lower prices than they should.<p>That phone call is what IEX prevents, so that their customers (guys with big tanker trucks) can buy gas without impacting the price of gasoline.
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joshualmost 10 years ago
if you have continuous trading, you are going to have complicated interactions (such as outlined in the article.)<p>instead, an occasional crossing (once a day? once an hour?) would provide much more &quot;fairness&quot; since everything happens at once, at the expense of &quot;timeliness&quot;.<p>back when I worked in this industry (a decade ago) POSIT provided something a lot like this<p>you can&#x27;t have it both ways, though.
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hackuseralmost 10 years ago
&#x27;Safe&#x27; markets are valuable even for insiders, because they attract more investors and volume. People naturally want to invest where they won&#x27;t be cheated.<p>That has been forgotten in the (largely manufactured, IMHO) anti-regulation outrage. Even the big Wall Street firms should benefit from regulation that makes non-insider investors feel the market is safe enough to invest in.<p>That said, I&#x27;m confused and my theory fails: Despite the long run of incompetence and fraud on Wall Street, its reputation as the leading place to invest and for expertise seems to persist and it has resisted regulation to a great degree. You don&#x27;t hear people say, &#x27;don&#x27;t invest in the stock market because you&#x27;ll be cheated&#x27;; or &#x27;don&#x27;t hire (some major Wall Street firm) because look how they cheated these other people, and they demonstrated complete incomptence in events X and Y&#x27;. Their reputation seems immune.<p>Maybe there are no better options.
dcaisenalmost 10 years ago
Dan from IEX here. For folks genuinely interested in US equity market trading dynamics, this paper out of Columbia is an awesome primer. More objective than flash boys or what you&#x27;ll read in the news.<p><a href="http:&#x2F;&#x2F;papers.ssrn.com&#x2F;sol3&#x2F;papers.cfm?abstract_id=2580002" rel="nofollow">http:&#x2F;&#x2F;papers.ssrn.com&#x2F;sol3&#x2F;papers.cfm?abstract_id=2580002</a>
Donchalmost 10 years ago
Read &quot;Flash Boys&quot; for a better insight into how much difference variable latency between exchanges and clients makes to the profitability of fast execution of trades.<p><a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Flash_Boys" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Flash_Boys</a>
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res0nat0ralmost 10 years ago
I&#x27;m no stock expert, but I still don&#x27;t see how people are getting &quot;screwed&quot; by hft. If you are concerned about a price fluxation just place a limit order. Simple as that. If you don&#x27;t care, then place a market order. There&#x27;s always been someone out there with more information, smarter people, and now faster connections than you. It&#x27;s never been a level playing field and will never be.
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